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Proposed carbon tax plan would return proceeds to people once goals are met

It could put the American fossil fuel industry on a clear path to extinction.

Photo credit: Roman Khripkov on Unsplash

Key Takeaways
  • A bipartisan group of renowned economists has proposed the U.S. implement a carbon tax.
  • The tax would increase until climate goals are met, and all proceeds would be given back to the people in equal lump-sums.
  • Recent research suggests that a majority of people would support a carbon tax policy that redistributes proceeds back to citizens.

A bipartisan group of renowned economists has a plan to help the U.S. cut its emissions and help stop rising global temperatures: Implement a carbon tax that gives all proceeds back to the American people.

In a letter published by the Wall Street Journal on January 16, the group — which includes all living former chairs of the Federal Reserve, and former White House economists from both parties — argues:

  • A carbon tax is the most cost-effective way to reduce carbon emissions at the scale and speed that is necessary.
  • A carbon tax should increase every year until emissions reductions goals are met.
  • All revenues should be returned directly to U.S. citizens through equal lump-sum rebates.

Although the letter doesn’t specify what the tax rate should be, the economists are arguing for an economic plan that would put the American fossil fuel industry on a rather clear path to extinction. Traditionally, carbon tax proposals have been met with derision or skepticism by many conservatives, who argue that such plans would stifle competition and result in lost jobs.

What’s novel about this proposal is that it’s endorsed by respected and credentialed Republicans. It’s also not hard to see how Americans who lean to the right might be amenable to a carbon tax whose revenues go to their pocket rather than the government, as the letter states:

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“To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.”

Many experts agree that if the global community is going to reach its lofty climate goals necessary to stop rising temperatures in their tracks, it’s going to need to implement a carbon tax. One of the best ways to get the public to support such a policy, according to recent research? Give the money back to the people.

​Climate dividends

In an article published in Nature, the researchers behind a recent study wrote that the concept of climate dividends is becoming increasingly popular.

“If all the money is given back to citizens, carbon taxes do not swell government coffers, which appeals to the political right. The left is also interested because the average tax burden is unchanged and low-income households are better off.

For example, a carbon tax that doubles the price of energy might increase the bills of a poor individual from $50 to $100, and of a richer person from $100 to $200. Without redistribution, the poor person is hit hard. But if tax revenues of $150 are split per head, so that each receives $75, the poorer person is $25 better off.

Per-capita dividends are already used in Switzerland, which has a carbon tax on heating fuels. Swiss residents receive their dividend as a rebate on health insurance, which is compulsory. In Canada’s incoming federal scheme, 90% of the carbon tax’s revenue will be returned to residents.”

It seems a majority of people would support such a plan.

For their study, the researchers surveyed about 5,000 citizens across five countries — Australia, India, South Africa, the United Kingdom and the United States — about their support for a series of hypothetical carbon tax designs. Each respondent was asked to rate how strongly they’d support one of six proposed ways to spend the revenues from a carbon tax, including supporting climate mitigation projects domestically, in developing countries or in all countries, paying out a per-capita dividend nationally or globally and using the money to lower domestic income taxes.

The results showed that a majority of people across all five countries, on average, supported three designs: lowering taxes, earmarking funds for mitigation projects and distributing revenes back to each citizen. As to how implement carbon taxes worldwide, the researchers suggested it’d be easiest if the global community focused on creating a system of harmonized taxes rather than one global tax because that’d allow each country to determine how it’ll use the revenues and make adjustments as time goes on.


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